Reddit Q2 Earnings Call Highlights

Key Points

• Reddit’s second-quarter results showed strong financial momentum: Revenue rose 61% year over year to $805 million, advertising revenue increased 64% to $762 million, and net income reached $253 million. Operating cash flow doubled to $262 million, while trailing-12-month operating cash flow exceeded $1 billion for the first time.
• Advertising growth broadened across products and customers. Active advertisers increased more than 70%, scaled-channel revenue doubled, and revenue from Dynamic Product Ads, app-install campaigns and Reddit Max more than doubled year over year.
• Reddit is prioritizing direct, frequent user engagement as search referrals remain volatile. Management is investing in feed recommendations, app retention, community discovery and internal search, while forecasting third-quarter revenue of $860 million to $870 million and adjusted EBITDA of $385 million to $395 million.

Reddit NYSE: RDDT reported second-quarter revenue growth of 61% as advertising sales rose 64%, while executives said the company is prioritizing product improvements intended to convert more weekly visitors into daily, direct users amid volatility in search referrals.

Total revenue reached $805 million in the quarter, including $762 million in advertising revenue. International revenue increased 84% year over year, outpacing 56% growth in U.S. revenue. Average revenue per unique user rose 36% to $6.18, according to Chief Financial Officer Drew Vollero.

The company reported net income of $253 million, or $1.25 per diluted share, compared with $0.45 per diluted share a year earlier. Operating cash flow doubled to $262 million, and trailing-12-month operating cash flow surpassed $1 billion for the first time. Reddit ended the quarter with $2.8 billion in cash, cash equivalents and marketable securities.

Advertising momentum broadens

Chief Operating Officer Jen Wong said advertising growth reflected strength across pricing and impressions, as well as increased advertiser adoption of Reddit’s automation and performance tools. Active advertisers increased more than 70% from a year earlier, while revenue from the company’s scaled channel, which includes mid-market and small and medium-sized businesses, doubled.

“Our strategy has been making every impression more valuable,” Wong said, pointing to year-over-year conversion-volume growth of more than 100% and click-volume growth of more than 30%.

Revenue from Dynamic Product Ads and app-install campaigns each more than doubled year over year. Wong said retail and travel were among the stronger industry verticals, while 11 of 15 verticals grew by more than 50%.

Reddit Max, the company’s AI-driven campaign automation suite, remained in private beta during the quarter. The number of advertisers using Max grew more than 60% from the first quarter, while revenue generated through Max increased more than 150%. The company added app-install objectives and introduced tailored creatives, which use AI to identify relevant communities and produce creative variations.

The company also highlighted growing demand for video advertising. Video-view revenue was its fastest-growing upper-funnel objective, more than doubling from a year earlier. Reddit said its six-second engaged-video-view objective delivered a more than 130% lift in six-second view-through rates and an 80% reduction in cost per six-second video view in testing using auto-bidding.

User strategy centers on direct engagement

Chief Executive Officer Steve Huffman said Reddit reached more than half a billion people weekly, including more than 130 million daily users. The company’s central product objective is to increase usage frequency and turn more weekly users into daily users, with a longer-term goal of reaching 1 billion daily users globally and 100 million in the United States.

Reddit said new app-user retention increased 50% year over year on a relative basis, though Huffman noted the metric is coming from a small base. Product changes include updated feed models, simplified posting tools, improved community recommendations and efforts to move web visitors to the mobile app, where users are more engaged.

However, the company faced uneven search traffic during the quarter, particularly later in the period. Huffman said search referrals were “choppy” and that the company saw declines in machine-translated content traffic internationally. He said Reddit has limited visibility into referral changes and is focused on building a direct-use destination rather than relying on “drive-by traffic.”

“The direct users, the app users are worth multiples more than the search referral traffic,” Huffman said during the question-and-answer session.

Huffman said the company sees substantial room to improve its home feed, including larger and faster-updating recommendation models, greater use of user-activity signals and a broader set of posts eligible for recommendation. Reddit is also working on how video appears in the home feed and testing experiences that could allow users to listen to posts.

Data licensing and search advertising remain areas of focus

Asked about data licensing agreements, Huffman said Reddit’s strategy has not changed and that the company is seeking to maximize the value of its content. He described uses including model training, post-training, grounding and search indexing, adding that Reddit’s relationships with AI and search companies are not necessarily binary licensing decisions.

“Reddit’s content is in demand, and it’s not commodity content,” Huffman said. He added that the company sees “an expanding marketplace” of potential data buyers and use cases.

Reddit also said it is making progress in improving internal search. The search bar is now universal within the app, and both searchers and searches grew during the quarter. Wong said the company sees an eventual advertising opportunity in search, particularly through shopping-oriented formats such as product catalog modules and shopping listing ads, though she did not provide a timetable for a general advertising launch on the surface.

Profitability, buybacks and outlook

Adjusted EBITDA was supported by an adjusted EBITDA margin of 43% in the second quarter. Gross margin was 91.3%, up 50 basis points from a year earlier. Adjusted operating expenses were $392 million, or 49% of revenue, compared with 57% a year earlier.

Reddit added roughly 100 employees during the quarter and crossed $1 million in trailing-12-month revenue per employee. The company repurchased approximately $235 million of stock, or about 1.5 million shares, at an average price of about $157 per share. About $760 million remained under its existing authorization at quarter-end.

For the third quarter, Reddit projected revenue of $860 million to $870 million, representing 47% to 49% year-over-year growth. It forecast adjusted EBITDA of $385 million to $395 million, implying a midpoint margin of 45%.

Vollero said the company lowered its full-year stock-based compensation outlook to the low-to-mid-teens percentage of revenue, from a prior expectation in the high teens. Reddit also said it will stop reporting logged-in and logged-out user metrics after the second quarter, while continuing to disclose total U.S. and international daily and weekly active users.

About Reddit (NYSE:RDDT)

Reddit is an online social news aggregation, discussion and content-sharing platform organized around user-created communities called "subreddits," each focused on a particular topic or interest. Registered users submit links, text posts, images and video, and community members vote and comment to surface popular content. The site is accessed via its web platform and mobile apps for iOS and Android, and it supports live events such as Ask Me Anything (AMA) sessions and community-driven discussions.

Founded in 2005 by Steve Huffman and Alexis Ohanian, Reddit is headquartered in San Francisco and serves a global audience with particularly large user bases in the United States and other English-speaking markets.

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